The Corporate Transparency Act (CTA) is going into effect on January 1, 2024, impacting millions of small businesses across the U.S.
Knowing the intricacies of this act and its potential impact is essential for small businesses. Otherwise, they may incur criminal or civil penalties for not filing or updating this report.
[Read more: Step by Step Instruction on How to File a Beneficial Ownership Report.]
What is the Corporate Transparency Act?
Enacted in 2021, the CTA aims to combat illicit activity including tax fraud, money laundering, and financing for terrorism by capturing more ownership information for specific U.S. businesses operating in or accessing the country’s market. Under the new legislation, businesses that meet certain criteria must submit a Beneficial Ownership Information (BOI) Report to the U.S. Department of Treasury’s Financial Crimes Enforcement Network (FinCEN), providing details identifying individuals who are associated with the reporting company.
The CTA was established to prevent individuals with malicious intent from hiding or benefitting from the ownership of their U.S. entities to facilitate illegal operations which, according to Congress, is a widely-used tactic that affects national security and economic integrity.
[Read More: How to Prevent Bank Fraud and Protect Your Business Account]
Who is considered a beneficial owner of a company?
According to the CTA, an individual qualifies as a beneficial owner if they directly or indirectly have a significant ownership stake in a company. This person either has a major influence on the reporting company’s decisions or operations, owns at least 25% of the company’s shares, or has a similar level of control over the company’s equity.